MKTG 350 1st Edition Lecture 15 Pricing Concepts for Establishing Value Price – sacrifice a person makes for a good or service (time and money) – for a benefit- signals the value of a product (quality) - You have to pay tax- Initial price- Time and gas (travel cost)- Shipping (online) - Rent, tuition, parking tickets, fines, interest, Price is usually ranked as one of the most important factors in purchasing decisionsPrice is the only marketing mix element that generates revenue – there is no cost associationKeystoneing- doubling the price (if it cost you 5 dollars to product you charge the customer 10) 1. Competition- a. Monopoly- one dominant firmb. Perfect competition- many firms selling comedies at the same price c. Oligopoly- few really large firms that dominate marketd. Monopolistic competition- many firms are competing but there are differences inthe products (restaurants) and prices2. Costsa. Variable costs- vary with production volume – labor (wages), materialsb. Fixed costs- unaffected by production volume—rent, salaries, taxes, insurancec. Total cost- sum of variable and fixed costs d. Break even analyses and decision making – how many units at each price will allow us to break even fixed costs/contribution per unit 3. Company objectives a. Profit oriented- institute a companywide policy that all products must provide forat least 18% profit margin to reach a particular profit goalb. Sales-oriented- set prices low to generate new sales and take away sales from competitors even if profits sufferc. Competitor oriented- to discourage more competitors from entering the market- low prices – Competitive parody – price the same as competitors d. Customer- orientates- target a market segment of consumers who highly value a particular product benefit and set prices relatively high (pricing premium- high price because customer assume the product is the best quality) customers willingness to pay certain prices 4. Customers- demand increases as price decreases (economics) a. Demand curves- not always downward sloping These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.b. Prestigious products or services have upward sloping curves c. Price elasticity of demand know how to solve i. Elastic- price sensitivity- increase price 1% least to greater than one percent change in demand (boat, luxury products)ii. Inelastic- price insensitive- increase in price 1% is less than or equal to 1%change in demand (medicine, food, gas, low prices items) iii. Consumers are less sensitive to price increases for necessitiesiv. % Change in quantity demanded/ % change in price [D/P] v. .5 demand decrease/.01 price increase = -50 (elastic if absolute value is greater than one) (inelastic if absolute value is less than one) d. Factors influencing price elasticity i. Cross price elasticity – how two products prices are related to each other 1. Substitutes- increase price of iPhone leads to in increased in demand for droids 2. Complements- increased price in DVD players leaded to a decrease in demand for DVDSii. Income effect- income level effects what you buy iii. Substitution effect 5. Channel members a. Manufactures, wholesalers and retailers have different perspectives on pricing strategiesb. Manufactures must protect against gray market transactions (gray markets- a product is coming from a international producer that’s not through an approved channel) warranties not honored through gray markets Economic factors- Local economic conditions- Increasing disposable income- less sensitive to prices - Cross-shopping- Vineyard Vines and target mixed together - Increasing status consciousness- Increasing